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Under the actual cost method, when you live in a property that also earns you rental income (from boarders, home-stay students, flatmates, or guests) you'll have shared rental expenses. You'll need to split these to find the allowable rental expenses you can deduct from your gross rental income. We call it apportionment.

Check if you need to do this for your type of rental property:

Tax by rental property type

Work out your fully deductible expenses

This is what you've spent on your rental property to only earn rental income, such as advertising. 

Rental expense deductions

Work out what expenses are shared

These are your shared rental expenses from income-earning use and private use of your property, such as rates.

It's your total shared expenses for the year.

Work out the total floor area of your property

You'll need to do this in square metres.

Work out the area used only used by guests or tenants

This is the income-earning area of the rental property.

Divide this by the total floor area to give you a percentage. For example, if 25 m2 of a 100m2 house is used only by guests or tenants the percentage of expenses you can claim is 25%.


Work out the shared common floor areas

This is the area of the room or rooms that are used by both the tenants, guests and you. For example shared lounges and bathrooms.

Divide this by the total floor area to give you a percentage. You can claim half of the expenses calculated using this percentage for shared common areas.

Work out the shared area and divide that by 2 to get the shared area expenses that you can deduct. For example 30 m2 of the 100 m2 house are common areas. The shared area is 30% of the house, divided this by 2 and 15% of the total shared common area expenses can be deducted.

Work out the area you can claim for shared expenses

Add together the percentages of income earning use and shared common areas.

For example 25% plus 15% equals 40%. This is the percentage of total shared expenses you can claim.

This is your shared use expense apportionment.

Work out the shared expenses amount you can deduct

Multiply the total shared expenses by the shared use expense apportionment. This is the shared rental expense total you can deduct.

Work out your total rental expenses

Add your fully deductible expenses to your total shared expenses.

This is your total rental expenses.

Work out your total income earning use days

Add up the days your property was rented. 

This is your total income earning use days. 

You may include the days your property, or part of it, was available to rent for any area intended to be used exclusively by guests. You’ll need to do a separate calculation for this. You’ll also need to keep records to show it was available to rent and not used privately at all during this time.

Rental property records

Work out your divided amount

Divide your income-earning use days by the days in the year.

For example, 300 divided by 365 is a divided amount. Make the result a percentage. In this case your divided amount is 82%.

 

Work out your total allowable rental expenses

Multiply your total rental expenses by your divided amount. 

These are your total allowable rental expenses you can deduct from your property's gross rental income.

After the deduction, the amount left over is what you'll pay income tax on.

What happens next

Once you've worked out your allowable rental expenses, check the pay tax on your rental income page to see what to do next:

Pay tax on your rental income


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Last updated: 28 Apr 2021
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